Carl Icahn on Herbalife
In the discussion at the Delivering Alpha Conference, Carl Icahn spoke about his investment in Herbalife. Herbalife (HLF) is a nutrition company that mainly develops and sells energy products. Distributors play the main role in its business model—it focuses on direct selling. This model has set new standards for the personal product industry (XLP).
At the conference, Icahn disclosed that he got permission from his company to acquire 35% of Herbalife shares. He’s trying to get the permission to acquire up to 50% of Herbalife shares. According to the institutional ownership report, Icahn is the largest investor in Herbalife (HLF) with 17 million shares as of June 30, 2016. Credit Suisse (CS) is the fifth-largest investor in Herbalife with 4.4 million shares.
According to Icahn, Herbalife is a good personal product company. When asked about why he’s holding Herbalife after so many investigations by the FTC (Federal Trade Commission) in the company, he said, “I believe Herbalife makes good products.” He also thinks that its business model is a unique model in the market (SPY) (QQQ) and will deliver a good return.
Bill Ackman bet against Herbalife
Bill Ackman is the founder and CEO of Pershing Square Capital Management. He thinks that Herbalife’s business model isn’t a lucrative one. Ackman stated, “Herbalife is an illegal pyramid scheme.” In 1Q15 and 2Q15, the company incurred $2.1 million and $4.8 million in expenses, respectively, related to FTC inquiries. This indicates that the company channeled meaningful expenses toward regulatory inquiries. Ackman said, “The reality is fraud continues at Herbalife. I can’t see any situation which is good for Herbalife.” He continues to keep his short position on the stock. Icahn said, “I think Ackman’s smart, but I think in this case it’s absurd to have a major short position.”
On July 15, 2016, the company announced that it reached a $200 million settlement agreement with the FTC. It resolved its multiyear investigation of the company. This left the company’s business model unchanged. However, Ackman is still betting against Herbalife, even after the FTC settlement. On August 26, 2016, Herbalife’s stock fell after Ackman said that its leading investor Carl Icahn was trying to sell his stake in Herbalife.
In the next part of this series, we’ll analyze Icahn’s view on the US presidential election.